As trust and transparency increasingly drive consumer behavior, compliance has evolved from a back-office task to a critical element of building and sustaining customer relationships. For dealerships, the ever-changing landscape of regulations surrounding consumer data privacy, pricing transparency and communication rules – as well as the steady increase in fraud - have made compliance a top priority.

In this Q&A, Robert Newman, Director of Performance Management & Product Consulting at Cox Automotive, shares actionable insights on how dealerships can address common compliance challenges to protect their reputations, foster customer loyalty and navigate today’s consumer-driven market.

Q1: How can dealerships proactively address rising digital fraud risks, especially synthetic identity fraud?

Newman: Digital fraud continues to grow, posing significant risks for dealerships. Fraud loss topped 10 billion in 2023 (the most recent data available), with synthetic identity fraud posing a significant challenge as digital transactions become the norm in automotive retail. This type of fraud involves combining real and fake information to create false identities, making it difficult to detect. Given this rise in fraud, the Federal Trade Commission (FTC) and state governments are responding with stricter regulations, including updates to the Safeguards Rule, which now requires enhanced security measures to protect consumer data. For example, encryption and multi-factor authentication can help protect customer information.

To combat digital fraud, dealerships should adopt multi-layered identity verification processes. These might include Synthetic ID fraud detection software, “out-of-wallet” questions that verify hard-to-access information and biometric authentication technologies to add an extra layer of security.

Equally important is employee training. Your staff should know how to spot red flags, such as inconsistencies in customer information or suspicious purchasing behaviors and understand how to respond effectively. Sales and F&I staff should be taught to listen to their gut instincts and exercise extra diligence when a deal seems too good to be true.

Q2: What steps should dealerships take to comply with new data breach disclosure requirements?

Newman: Data breaches have become a growing concern across industries, and dealerships are no exception. The consequences of a data breach extend far beyond fines; they can erode customer trust and damage your dealership’s reputation. With new regulations requiring swift notification to affected customers and regulatory bodies when sensitive data is compromised, having a strong data breach response plan is non-negotiable.

A comprehensive data breach response plan should include clear steps for detecting breaches, containing the damage and notifying affected parties. Dealers should also focus on proactive measures, including implementing encryption protocols, conducting regular vulnerability assessments and enforcing strict access controls to safeguard sensitive customer information.

Q3: How can dealerships ensure compliance with strict record-keeping and customer consent requirements?

Newman: Detailed record-keeping isn’t just a regulatory requirement—it’s a powerful tool that protects your dealership in the event of disputes or audits. For instance, because it’s required to have consumer consent to pull credit on a deal, it’s important to keep those records available for later reference. Detailed documentation of every transaction, communication, and consent agreement is essential. This ensures that dealerships can demonstrate compliance while addressing any potential customer concerns.

To streamline the process, investing in secure digital record-keeping systems is crucial. These systems should store and organize customer data, consent forms, and compliance documentation in a way that is both accessible and secure. Regular audits of these records and consistent staff training are also important to ensure compliance and efficiency.

Keeping well-organized, accurate records is essential to maintaining transparency, building trust and avoiding costly compliance pitfalls.

In an industry where customer loyalty is your biggest asset, compliance isn’t just about avoiding penalties – it’s about building a reputation for trustworthiness and ethical business practices. By strengthening fraud prevention measures, preparing for data breaches and maintaining meticulous records, dealerships can protect their operations while fostering customer confidence.

Robert Newman is the director of performance management and product consulting retail software solutions at Cox Automotive. He specializes in optimizing sales and profits for both new and used car dealerships.

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